This week, the Federal Reserve unexpectedly turned to a dovish stance, driving a significant surge in risky assets. Looking ahead to next week, the market focus will be on the Bank of Japan's interest rate decision and the Federal Reserve's most favored inflation indicator.
Although Bank of Japan Governor Kazuo Ueda is not fully prepared to announce the end of the old policy era, the bank is getting closer to ending its long-standing unconventional monetary easing policy.
Even if Kazuo Uchida continues to maintain a more relaxed tone next week, he will still reveal some follow-up policy trends, which may cause severe market fluctuations. In addition, Japan's core CPI rose 2.9% year-on-year in October, exceeding the Bank of Japan's target for 19 consecutive months.
Last week, Kazuo Ueda stated that from the end of the year to next year, the Bank of Japan will face greater challenges in handling monetary policy. Due to market expectations for the normalization of Japan's monetary policy, traders began to make wild bets that the Bank of Japan may historically withdraw from negative interest rate policy at its monetary policy meeting on December 19th, leading to a significant surge in the yen against the US dollar exchange rate. However, the news was subsequently falsified, but it also reflected an expectation from investors.
According to the latest survey, the Bank of Japan will end its ultra loose monetary policy as early as January next year, and there should not be much change next week. As a global outlier, the Bank of Japan is likely to remain one of the most dovish central banks in the world by the end of this year, although economists expect the Bank of Japan to start raising interest rates soon. At the same time, central banks of other developed countries have suspended interest rate hikes and are even preparing to cut rates next year. Taking the Federal Reserve as an example, the dot matrix shows that the bank will cut interest rates three times next year.
Mari Iwashita, chief market economist of Daiwa Securities, said that it would be better for him to send instructions to the leadership of the Bank of Japan this month, asking them to start considering withdrawing from the negative interest rate policy, so as to inform the market in advance& Amp; Quota; Even if the negative interest rate policy is lifted, the Bank of Japan will explain that the financial environment is still loose& Amp; Quota;
Moe Nakahama, Associate Researcher at Itochu Research Institute, claimed that the Bank of Japan will revise its price outlook in April and point out in its quarterly report that the price target will be achieved after determining wage increases in next spring's labor negotiations. She added that the Bank of Japan will end both negative interest rate and yield curve control (YCC) policies in April next year.
In addition, the Federal Reserve has maintained interest rates unchanged for the third consecutive policy meeting this week and has opened the door for interest rate cuts starting next year. As for when the Federal Reserve will cut interest rates in the future, it depends on the development trend of inflation.
Next Friday, the US Department of Commerce will release the November PCE Price Index. Given the continued decline in energy prices, the overall PCE Price Index may slightly cool, while the core PCE Price Index is expected to maintain a monthly growth rate of 0.2%.
If the data roughly meets or falls below expectations, it will continue to consolidate the expectation of future interest rate cuts by the Federal Reserve; But if any one or two of the personal expenses and core PCE data unexpectedly rise, it may trigger a sell-off in the US stock market.
BMO Capital Markets analysts say that a soft landing has become the market's basic expectation, while inflation will continue to slide towards the Federal Reserve's target level, with the S&P 500 index expected to reach 5100 points next year.
In terms of financial reports, only well-known companies such as Accenture, FedEx, Micron Technology, and Nike deserve attention for their performance.
Overview of important events next week:
Monday (December 18th): Germany's December IFO Business Climate Index, the US December NAHB Real Estate Market Index, and the European Central Bank's Fiscal Policy and European Monetary Union Governance Biennial Meeting will be held
Tuesday (December 19th): Switzerland's November trade account, the final value of the Eurozone's November CPI annual rate, the Eurozone's November CPI monthly rate, Canada's November CPI monthly rate, the annualized total number of new housing starts in the United States in November, the total number of construction permits in the United States in November, Japan's central bank interest rate decision until December 19th, and Bank of Japan Governor Kazuo Ueda holding a monetary policy press conference
Wednesday (December 20th): API crude oil inventory for the week ending December 15th in the United States, one-year loan market quotation rate for China ending December 20th in China, monthly PPI rate for Germany in November, monthly CPI rate for the United Kingdom in November, quarterly adjusted current account for the Eurozone in October, third quarter current account for the United States, annualized total sales of completed homes in November in the United States, December Consumer Confidence Index of the US Chamber of Commerce, EIA crude oil inventory for the week ending December 15th in the United States EIA Oklahoma Cushing crude oil inventory for the week ending December 15th in the United States, and Atlanta Fed Chairman Bostek delivered a speech on the US economic and business outlook
Thursday (December 21)
Friday (December 22): Japan's November Core CPI Annual Rate, UK Q3 GDP Annual Rate Final Value, UK Q3 Current Account, Canada's October GDP Monthly Rate, US November Core PCE Price Index Annual Rate, US November Personal Expenditure Monthly Rate, US November Core PCE Price Index Monthly Rate